Annual Report 2018Year ended March 31, 2018

TERAOKA SEISAKUSHO CO., LTD.

Teraoka Seisakusho Co., Ltd.

15

PROFILE
Since its establishment in 1921, Teraoka Seisakusho Co., Ltd. has developed into aleading manufacturer of highly functional packing, electrical insulation, electronicequipment, other industrial and general home-use adhesive tapes.
Teraoka aims to “bring bright, new technology into people’s lives” through cuttingedge adhesive technology across a variety of fields. As we approach the 100th anniversary of the Company’s founding, we strive to recreate the company into one with
an awesome but humble presence by going above and beyond our corporate social
responsibilities as well as maintaining assiduous innovations and taking on new challenges. We will continue to make efforts to develop new products with high addedvalue and provide these to the global market.

CONTENTS
Consolidated Financial Highlights ............................ 1
To Our Stockholders .................................................. 2
Review of Operations ................................................ 4
Consolidated Five-Year Summary ............................. 6
Financial Review ......................................................... 8
Report of Independent Auditors .............................. 25
Company Data............................................................ 26
10

Teraoka Seisakusho Co., Ltd.

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FINANCIAL HIGHLIGHTS

For the years ended March 31,
Thosands of
U.S. dollars

Millions of yen

2018

2017

2018

¥22,816¥21,262$214,696

Operating Income

1,319

1,039

12,414

Income before Income Taxes

1,291

768

12,148Net Income

921

616

8,670

Total Assets

35,916

34,640337,970

Net Assets

28,68627,994

269,941

Operating Income to Net Sales

5.8

4.9

Equity Ratio

79.9

80.8

Return on Average Assets (ROA)

2.6

1.8

Return on Average Stockholders’ Equity (ROE)

3.3

2.2

Net Sales

Ratio (%)

Per Share

Yen

U.S. dollars

Net Income¥36.37¥23.96$0.34

Cash Dividends

12.00

11.00

0.11

The U.S. dollar amounts in this annual report are translated from yen, for convenience only,at the rate of ¥106.27 = US$1, the rate prevailing on March 31, 2018.

Net Sales

Net Income (Loss)(¥ billions)

Total Assets(¥ millions)(¥ billions)
40

1,200

30

1,000
30
800

20

20

600

10

400
10
200

0

14

15

16

17

18

0

14
15

16

17

18

0

14

15

16

17

18

Teraoka Seisakusho Co., Ltd.

1TO OUR STOCKHOLDERS

Result for FY 2018
Fiscal year 2018, the year ended March 31, 2018 marks our 108th business term.
During this consolidated fiscal year, the Company’s corporate group saw satisfactory sales
for electronic tape related to mobile devices, which is our main product. The consolidated net
sales for this term were ¥22,816 million (US$214,696 thousand), a 7.3% increase over the previous term. The operating income was ¥1,319 million (US$12,414 thousand) this term, a 27.0%
increase over the previous term. Consolidated income before income taxes was ¥1,291 million(US$12,148 thousand), a 68.2% increase from the previous term. The result is that the consolidated net income attributable to owners of parent was ¥921 million (US$8,670 thousand), a
49.5% increase over the previous term.
The end of term dividend was distributed at ¥6.00 (US$0.06) per share and the mid-term
dividend preceding it was ¥6.00 (US$0.06) per share for a total of ¥12.00 (US$0.11) per share inannual dividends.

Future Focus
Regarding Japan’s economic potential going forward, economic conditions are expected toremain steady due to improved employment/income environment as an effect of the push-up of
public investment from an equipment investment upsurge and demands related to the Olympics.
At the same time, possible risks of economic slowdown include the risk of relations with North
Korea becoming more tense, political turmoil in the US and Europe, economic downturn in China
and protectionist policies in the US. Due to these risk factors, the international financial markets is in a state of confusion and since there is concern that the world economy may come to a
standstill, this state of uncertainty is expected to continue.
Under these conditions, the Company Group will promote a Scrap and Build plan in order tostructure an optimum production system. We will also provide a work environment with careful consideration for safety as we also strive to enhance our quality assurance system. Further,
we will promote the introduction of IoT and in so doing we will strengthen our management’s
foundations by realizing even more reliability in product quality. We will endeavor to sustainably
secure our sales operating income margin, which is an important management index for ourgroup company. Also, our Indonesian subsidiary is striving to further improve quality as well as
expanding the product lineup in order to establish a position in the Company Group’s consolidated business.

Problem Prevention
1 Inappropriate Conduct Related to Some Company Products
We want to raise the issues arising from some of our products manufactured at our Sano and
Ibaraki factories. We have confirmed that some of the test result data was overwritten and products that deviated from client specs were indeed shipped.
First of all, we would like to apologize deeply for any inconvenience or uncertainty we may
have caused to many of you.
Regarding this issue, we established the Commission of inquiry was to make recommendations on preventive measures, as well as to investigate the truth behind thoroughly from theCompany’s Board of Directors delegate independence and neutrality are secured and in factpromotes the study of the relationship between.
Our board is conducting a strict verification regarding all company initiatives related to thisissue, separately from these entrusted items.
Based on the committees report that was submitted at the end of June 2018, we intend toenhance quality control systems and production management systems along with detailed measures to prevent recurrence of the issues. Additionally, we will continue to improve our corporate
governance and compliance systems.

2

Teraoka Seisakusho Co., Ltd.

2 Management Challenges
1) Enhancement of Compliance Structure
Based on the inappropriate behavior related to someof our products, the Company Group is dedicated tocreating a healthy corporate environment we can beproud of while achieving our CSR (corporate social
responsibility).
Moreover, we will be making compliance enhancement (compliance with corporate ethics andlaws), and further we be increasing employee compliance awareness through company-wide education
programs using e-learning while also conducting
company-wide proactive efforts through a compliance committee.
2) Enhancing Quality Management and Assurance Systems
By implementing strict quality boost to build as soon
as possible to respond to requests from industry to
enforce quality education based on the principles andconduct, quality management demanding the highestalso, increase our corporate value and stockholders’,aiming to achieve common interests.
3) Establishing Continued Operating Profit on
Sales
While gaining a deeper and comprehensive understanding of user needs for our products, we areconducting effective sales activities by concentrating
human resources in the major segments, improving
comprehensive competitiveness of company products in the Indonesia factories and planning productlineup expansion. We are also continuously ensuring
operating profit on sales in ways such as clarifying astrategic position of the location in ASEAN, including
putting the advantages of the location to good use.
4) Production system organization and new product development for the future
Along with promoting Scrap and Build of the equipment for organizing an optimum production
system and achieving further improvement of product quality, we are proceeding with organic
collaboration between manufacturing, technology and sales departments and will strive to put
new products with a high profitability and high expected added value on the market in a timely
manner.
We would like to take this opportunity to express our sincere gratitude to our stockholders fortheir continued patronage and support.
June 22, 2018

Keishiro Teraoka,
Chairman

Kenichi Tsuji,
President
Teraoka Seisakusho Co., Ltd.

3REVIEW OF OPERATIONSIn the current consolidated fiscal year, the Japanese economy continues to recover in exports and equipment investment and corporate profits continue to rise. In addition
to fixed individual consumption and vigorous labor saving
investments, the employment and income environment
has continued to improve, facilitating the longest continuous economic expansion since after WWII.
Taking a look overseas, while China’s economy had
been decelerating since 2016, the underlying political support for the economy has been effective and it is starting
to recover. At the same time the EU economy is on theroad to recovery. On the other hand, growth has beenconspicuously slow in the UK due to Brexit talks. In theUS, in addition to autonomous recovery in the private sector, such as in households, the addition of tax reform andgovernment expenditures continue to boost the economy.
Furthermore, in addition to the growth of consumer devices, such as smartphones, in emerging nations, information-related demands is growing significantly with moves
to computerize vehicles and appliances, and the expansionof IoT and big data.
Under this economic environment, the Company
Group, as this consolidated fiscal year is the final year of
the Phase 1 of the new mid-term business plan (a threeyear plan from April 2015 to March 2018) we have conducted a comprehensive review of the company-wide
problems during the period. In addition, as further meas-

Sales of Electrical Insulation andElectronic Equipment Tapes

Sales of Packing Tapes(¥ billions)5
4(¥ billions)
12

4.1
3.7

3.8

3.7

ures for growth, we made efforts to train personnel witha main focus of enhancing on-site capabilities, raised thetechnological standards by enhancing the quality assurance system and taking technical inventory, and enhanced
the product development system and improved productivity. Through these activities we were able to continue
with cost reduction activities and focus on active customer
acquisition.
Total R&D costs in this consolidated accounting period
were ¥847 million (US$7,972 thousand) and the consolidated sales ratio was 3.7%. This is a decrease of 0.3 points
below the previous term.
Consolidated sales for the corporate group were
¥22,816 million (US$214,696 thousand). Sales are broken
down by product segment below.

3.7

3

11.9

11
10

11.6

11.1
10.3

9.3

7.1

6.8

6.9

‘15

‘16

7.3

7.5

‘17

‘18

6

4

6
4

1

2

2

‘14

‘15

‘16

‘17

‘18

0

‘14

‘15

Packing Tapes
Consolidated sales for Packing Tapes increased 0.9% overthe previous term to ¥3,724 million (US$35,037 thousand)due to an increase in wide tapes for construction, development of new applications for special-grade cloth tape foroverseas customers, and popularity in consumer-related
products sold mostly online or by mail-order. However, thissegment accounts for 16.3% of total consolidated sales
and decreased by 1.1 points below the previous term.

4(¥ billions)
8

8

2

0

Sales of Other Industrial Tapes

Teraoka Seisakusho Co., Ltd.

‘16

‘17

‘18

0

‘14

Electrical Insulation and Electronic Equipment Tapes
Regarding Electrical Insulation and Electronic Equipment
Tapes, although LCD-related tapes and electrical parts
processing tapes geared toward overseas mobile device
manufacturers were affected by a rapid market decline,
this was covered by new uses for new products, contributing to sales growth in this sector. Automotive part sales
also expanded by promoting the transition to electricalequipment.

BREAKDOWN OF SALES BY CATEGORY

50.6% Electrical Insulation and16.3% Packing Tapes

Electronic Equipment Tapes

Olive cloth tapes● Kraft paper tapes●●●

Polypropylene film adhesive tapes●●●

Double-coated adhesive tapes●

Corrosion-proof tapes
Masking cloth tapes●

Surface protection tapes●

As a result, consolidated sales for this product segment increased by 11.9% from the previous term to¥11,550 million (US$108,687 thousand). This segment
accounts for 50.6% of total consolidated sales and has
GEOGRAPHICAL
SALESMARKETS
increasedby 2.1 points
over theprevious term.

Kapton film adhesive tapes
Nomex adhesive tapes●

Glass cloth adhesive tapes●

EMI/RFI shielding tapes●

Silicone rubber adhesive tapes

1.0%

R

(¥ billions)10

Other Industrial Tapes

27.6%
With regards to the Other IndustrialJapan
Tapes segment, due
to the impact of demand relating to69.0
the Olympics,
besides%curing cloth tape which is the main product for the infrastructure and building industry and durable polyethylene
cloth tape, there has been an increase in orders for tapes
for automobile parts.
The result was that consolidated sales for this prodNorthuct segment increasedby America
4.0% over the previous term
1.5% thousand). This segment
to ¥7,542 million (US$70,972
accounts for 33.1%Europeof total consolidated sales, which is adecrease of 1.0 points
to the previous term.
0.9compared%
Other areas

R

CHANGES IN OVERSEAS SALES

8.17

8

Asia

Acetate cloth adhesive tapes
Combination adhesive tapes●●

33.1% Other Industrial Tapes

Polyester film adhesive tapes

7.61

7.31
6.59

6.29
6

4

2

0

’14

’15

’16

’17

’18

GEOGRAPHICAL SALES MARKETS
Asia

26.6%

Japan

68.0%
Overseas Sales
Consolidated overseas sales for Packaging Tapes increased 15.7%, Electrical Insulation and Electronic Equipment Tapes increased 10.8% and Other Industrial Tapes
increased 7.2% from the previous term. Gross export
value was ¥7,308 million (US$68,770 thousand), a 10.8%
increase over the previous term. Gross export value makes
up 32.0% of total consolidated sales, and has increased 1.0
points compared to the previous term.

North America

3.4%

Europe1.0%

Other areas

1.0%

Teraoka Seisakusho Co., Ltd.

5

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FIVE-YEAR SUMMARY

Thousands of
U.S. dollars

Millions of yen

2014

2015

2016

2017

2018

2018

¥20,529¥22,477¥21,771¥21,262¥22,816$214,696

Operating Income (Loss)

(105)

1,024

1,144

1,039

1,319

12,414

Income (Loss) before Income Taxes

(794)

1,902

991

768

1,291

12,148Net Income (Loss)

(924)

1,025

727

616

921

8,670

Total Assets

32,59635,33133,49534,64035,916

337,970

Net Assets

26,27728,26827,96327,994

28,686

269,941

Operating Income (Loss) to Net Sales

(0.5)

4.6

5.3

4.9

5.8

Equity Ratio

80.6

80.0

83.5

80.8

79.9

Return on Average Assets (ROA)

(2.8)

3.0

2.1

1.8

2.6

(3.5)

3.8

2.6

2.2

3.3

Years ended March 31

Net Sales

Ratio (%)

Return on Average
Stockholders' Equity (ROE)Per Share

Yen¥(35.09)¥38.92¥27.62¥23.96¥36.37$0.34

Cash Dividends

10.00

10.00

11.00

11.00

12.00

0.11

The U.S. dollars are translated at the rate of ¥106.27 per US$1, prevailing on March 31, 2018.

6

U.S. dollars

Net Income (Loss)

Teraoka Seisakusho Co., Ltd.

CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year 2018Year ended March 31, 2018

Teraoka Seisakusho Co., Ltd.

7

FINANCIAL REVIEWBusiness Performance
In the current consolidated fiscal year, the Japanese economy continues to recover in exports and corporate
profits continue to rise. In addition to fixed individual consumption and vigorous labor saving investments,

Net Assets(¥ billions)theEquity
employment
Ratio and income environment has continued to improve, facilitating the longest continuous eco(%) expansion since after WWII.
nomic

Taking a look overseas, while China’s economy had been decelerating since 2016, the underlying politi-

100

30

cal support for the economy has been effective and it is starting to recover. At the same time the EU economy
is on the road to recovery. On the other hand, growth has been conspicuously slow in the UK due to Brexit

80

talks. In the US, in addition to autonomous recovery in the private sector, such as in households, the addi20

tion of tax reform and government expenditures continue to boost the economy. Furthermore, in addition to60

the growth of consumer devices, such as smartphones, in emerging nations, information-related demands is
growing significantly with moves to computerize vehicles and appliances, and the expansion of IoT and big

40

data.

10

Under this business environment, the Company Group, as this consolidated fiscal year is the final year of
20the Phase 1 of the new mid-term business plan (a three-year plan from April 2015 to March 2018) we haveconducted a comprehensive review of the company-wide problems during the period. In addition, as further
0

14 15 16 17 18

Net Income (Loss)
per Share (Yen)0measures for growth, we made efforts to train personnel with a main focus of enhancing on-site capabilities,

14 15 16 17 18
raised the technological standards by enhancing the quality assurance system and taking technical inventory,

and enhanced the product development system and improved productivity. Through these activities we were

Return on Averageable
to continue(%) cost reduction activities and focus on active customer acquisition.
Assets(ROA)with
340

As a result, consolidated net sales for this term, was a 7.3% increase of ¥22,816 million (US$214,696

thousand), from the previous term. The consolidated operating income was ¥1,319 million (US$12,414
thousand) this term, a 27.0% increase over the previous term. Consolidated income before income taxes was¥1,291 million (US$12,148 thousand), a 68.2% increase from the previous term. The result is that the consoli-

30

2dated net income attributable to owners of parent

was ¥921 million (US$8,670 thousand), a 49.5% increaseover the previous term.
20

Segment Information

1

The Company’s corporate group business consists of a single segment, manufacture and sale of adhesive

100tape. However, the following is an explanation of the state of sales by product division.
14
15 16 17 18

Consolidated sales for Packing Tapes increased 0.9% over the previous term to ¥3,724 million (US$35,037
14
thousand)due to an increase in wide tapes for construction, development of new applications for special0
15 tape
16 for17overseas
18
grade cloth
customers, and popularity in consumer-related products sold mostly online
or by mail-order. This segment accounts for 16.3% of total consolidated sales and decreased by 1.1 points

Cash Dividends
per Share (Yen)

Returnon Average
below
the previous
term.

Stockholders'Equity (ROE) (%)
Regarding Electrical Insulation and Electronic Equipment Tapes, although LCD-related tapes and electri-

415

cal parts processing tapes geared toward overseas mobile device manufacturers were affected by a rapid
market decline, this was covered by new uses for new products, contributing to sales growth in this sector.
Automotive part sales also expanded by promoting the transition to electrical equipment.

3

As a result, consolidated sales for this product segment increased by 11.9% from the previous term to10¥11,550 million (US$108,687 thousand). This segment accounts for 50.6% of total consolidated sales and has
2increased by 2.1 points over the previous term.

With regards to the Other Industrial Tapes segment, due to the impact of demand relating to the Olympics, besides curing cloth tape which is the main product for the infrastructure and building industry and51durable polyethylene cloth tape, there has been an increase in orders for tapes for automobile parts.
The result was that consolidated sales for this product segment increased by 4.0% over the previous term to08

14 15 16 17 18

Teraoka Seisakusho Co., Ltd.

¥7,54214 million (US$70,972 thousand). This segment accounts for 33.1% of total consolidated sales, which is a0
151.01617 compared18
decrease ofpointsto the previous term.

8

8

8

On the other hand, gross export value was ¥7,308 million (US$68,770 thousand), a 10.8% increaseover the previous term. Gross export value makes up 32.0% of total consolidated sales, and has increased 1.0
points compared to the previous term.

Equity Ratio(%)

Financial Position
Total assets for the end of year consolidated accounting increased by 3.7% or ¥1,276 million (US$12,010

100

thousand) over the previous end of year consolidated accounting to ¥35,916 million (US$337,970 thousand).
Total current assets for the end of year increased by 7.1% or ¥1,352 million (US$12,724 thousand) over80

the previous end of year consolidated accounting to ¥20,343 million (US$191,427 thousand). This was mainly
due to an increase in cash and deposits.

60

Total fixed assets for the end of year consolidated accounting decreased 0.5% or ¥76 million (US$714
thousand) from the previous end of year consolidated accounting for a total of ¥15,573 million (US$146,543

40

thousand). This is mainly due to a decrease in fixed assets and tangible fixed assets.

20

thousand) from the previous end of year consolidated accounting to ¥7,230 million (US$68,029 thousand).

Total liabilities for the end of year consolidated accounting increased 8.8% or ¥584 million (US$5,493
Out of this, total current liabilities increased by 7.9% or ¥400 million (US$3,772 thousand) from the previous0

14 15 16 17 18

Return on Average
Assets (ROA) (%)

end of term to ¥5,484 million (US$51,610 thousand). This was mainly due to an increase in trade payables.
Total long-term liabilities for the end of the term increased 11.7% or ¥184 million (US$1,721 thousand) forthe previous end of year consolidated accounting to ¥1,746 million (US$16,419 thousand).
Total net assets for the end of year consolidated accounting increased 2.5% or ¥692 million (US$6,517
thousand) above the previous end of year consolidated accounting to ¥28,686 million (US$269,941 thou-3sand). This was mainly due to an increase in retained earnings and other valuation difference on availablefor-sale securities.
The result of these figures is a capital-to-asset ratio of 79.9%, a decrease of 0.9 points from the previous term.

2

Cash Flows
Capital from operating activities increased by ¥1,692 million (US$15,924 thousand). Increase in these activi1

ties for the previous fiscal year was ¥2,003 million. This increase in this term was mainly due to an increase incurrent net profit before taxes and other adjustments.
Cash flow used for investment activities was ¥452 million (US$4,252 thousand). Even in these activities

014
15 16 17 18of the previous consolidated accounting term, ¥21 million was used for investment. This term mainly focusedon expenditures for acquisition of tangible fixed assets.
There was a ¥327 million (US$3,084 thousand) decrease in capital from financial activities. The amount

Return on Average
Stockholders' Equity (ROE) (%)
4of capital used in financial activities for the previous consolidated accounting year was ¥587 million. The
decrease this term was mainly due to dividend payments.
From these activities, consolidated cash and cash equivalents for end of year consolidated accounting
were ¥8,725 million (US$82,103 thousand), an increase of ¥820 million (US$7,716 thousand) compared tothe previous year end consolidated accounting.

3

Dividends
TERAOKA considers the payment of dividends to its stockholders as one of our most important business is-2

sues, and we continue stable dividend payments.
According to our basic stance on this type of dividend, the end of term dividend was ¥6.00 (US$0.06)
1

per share and combined with the previously distributed interim dividend of ¥6.00 (US$0.06) per share, thetotal annual dividends were ¥12.00 (US$0.11) per share.

014
15 16 17 18

Teraoka Seisakusho Co., Ltd.

9

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETSMarch 31, 2018 and 2017

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

¥ 9,077
5,909
1,013
(9)
3,711
334
308
20,343¥ 8,223
5,583
549
(7)
3,965
324
354
18,991$ 85,416
55,601
9,532(85)
34,923
3,143
2,897
191,427

Less: Accumulated depreciation ................................................................
Property, plant and equipment, net ...........................................................

4,032
11,54924,763269
285
40,898(30,101)
10,797

4,051
11,645
24,792269
97
40,854(29,782)
11,07237,938
108,674
233,0182,536
2,687
384,853(283,250)
101,603

Intangible Assets .........................................................................................

285

366

2,677

Investments and Other Assets:
Investments in securities (Notes 2-b and 5) ...............................................
Deferred income taxes (Note 2-g) .............................................................
Net defined benefit asset ..........................................................................
Other .......................................................................................................
Less: Allowance for doubtful accounts (Note 2-h) .....................................
Total investments and other assets ............................................................

4,134
7
177
174
(1)
4,491

3,893
7
88
226
(3)
4,211

38,897
65
1,669
1,639
(7)
42,263

Total assets ........................................................................................

¥ 35,916¥ 34,640$ 337,970

ASSETS
Current Assets:
Cash and time deposits ............................................................................
Notes and accounts receivable - trade .......................................................
Electronically recorded monetary claims - operating ..................................
Less: Allowance for doubtful accounts (Note 2-h) .....................................
Inventories (Note 2-c) ...............................................................................
Deferred income taxes (Note 2-g) .............................................................
Other current assets .................................................................................
Total current assets ............................................................................

Property, Plant and Equipment (Notes 2-d and 2-f):
Land .........................................................................................................
Buildings ..................................................................................................
Machinery and equipment ........................................................................
Leased assets ............................................................................................
Construction in progress ...........................................................................

The accompanying notes to consolidated financial statements are an integral part of these statements.

10

Teraoka Seisakusho Co., Ltd.

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent Liabilities:
Notes and accounts payable - trade ..........................................................
Electronically recorded obligations - operating ..........................................

¥ 1,294
2,455¥ 1,226
2,482$ 12,180
23,104

Short-term borrowings .............................................................................
Lease obligations ......................................................................................
Accrued income taxes ...............................................................................
Accrued expenses .....................................................................................
Other current liabilities .............................................................................
Total current liabilities .....................................................................

—
19
203
560
953
5,484

4
19
176
484
693
5,084

—
183
1,913
5,273
8,957
51,610Long-term Liabilities: ��������������������������������������������������������������������������������
Net defined benefit liability .......................................................................
Deferred liabilities taxes (Note 2-g) ...........................................................
Asset retirement obligations .....................................................................
Lease obligations ......................................................................................
Provision for environmental measures .......................................................
Other .......................................................................................................
Total long-term liabilities .................................................................

40
737
297
249
316
107
1,746

31
545
293
268
316
109
1,562

376
6,931
2,794
2,343
2,969
1,006
16,419Total liabilities .................................................................................

7,230

6,646

68,029NET ASSETSStockholders’ Equity:
Common stock .........................................................................................
Authorized: 80,000,000 shares
Issued: 26,687,955 shares as of March 31, 2018 and26,687,955 shares as of March 31, 2017, respectively
Additional paid-in capital ..........................................................................
Retained earnings .....................................................................................
Less: Treasury stock, at cost ......................................................................
Total Stockholders’ equity ...............................................................

5,057

5,057

47,588

4,644
17,385(462)
26,624

4,644
16,768(462)
26,00743,700163,593(4,353)
250,528

Accumulated other comprehensive income
Unrealized gains on securities (Notes 2-b and 5) .......................................
Foreign currency translation adjustments (Note 2-j) ...................................
Remeasurements of defined benefit plans ................................................
Total accumulated other comprehensive income .............................
Total net assets ...............................................................................

1,847
151
64
2,062
28,686

1,669
322
(4)
1,987
27,994

17,3871,419
607
19,413269,941

Total liabilities and net assets ..........................................................

¥35,916¥34,640$337,970

Teraoka Seisakusho Co., Ltd.

11

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
For the years ended March 31, 2018 and 2017

Thousands of
U.S. dollars

Millions of yen

2018¥22,816
16,630
6,186
4,867
1,319

2017
¥21,262
15,486
5,776
4,737
1,039

2018
$214,696
156,484
58,21245,79812,414

96
41
(274)
(13)
—
74
—
48
(28)

89
70
(41)
(25)
(475)
399
(333)
45
(271)

903
390
(2,579)
(119)
—
696
—
443
(266)

Income before income taxes ..................................................................

1,291

768

12,148

Income taxes:
Current ....................................................................................................
Deferred ...................................................................................................
Total income taxes .................................................................................

297
73
370

188
(36)
152

2,793
685
3,478

Net Sales ......................................................................................................
Cost of Sales ................................................................................................
Gross Profit ...........................................................................................
Selling, General and Administrative Expenses ...............................................
Operating income .................................................................................
Other Income and Expenses:
Interest and dividend income ....................................................................
Commission received ................................................................................
Foreign exchange gains (losses), net .........................................................
Amortization of business commencement expenses ..................................
Commission paid ......................................................................................
Gain on sales of investment securities .......................................................
Environmental expenses ...........................................................................
Other, net .................................................................................................

Net income ...........................................................................................
Profit attributable to non-controlling interests ..............................................
Profit attributable to owners of parent .........................................................
Per Share
Per share of common stock
Net income ...............................................................................................
Cash dividends .........................................................................................

The accompanying notes to consolidated financial statements are an integral part of these statements.

12

Teraoka Seisakusho Co., Ltd.

¥

921

¥

—
921

616
—
616

Yen

¥36�37
12�00

$

8,670
—
8,670

U.S. dollars¥23.96
11.00

$0�34
0�11

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2018 and 2017

Thousands of
U.S. dollars

Millions of yen

2018
¥921

2017
¥616

2018
$8,670

178
(171)
68
75

16
(62)
44
(2)

1,674
(1,605)641
710

Comprehensive Income ................................................................................

996

614

9,380

Total comprehensive income attributable to:Comprehensive income attributable to owners of parent ..........................
Comprehensive income attributable to non-controlling interests ...............

996
—

614
—

9,380
—

Net income ..................................................................................................
Other Comprehensive Income
Unrealized gains on securities ...................................................................
Foreign currency translation adjustments ..................................................
Remeasurements of defined benefit plans, net of tax ................................
Total other comprehensive income ............................................................

The accompanying notes to consolidated financial statements are an integral part of these statements.

Teraoka Seisakusho Co., Ltd.

13

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the years ended March 31, 2018 and 2017

Millions of yen
Accumulated Other Comprehensive Income

Stockholders’ Equity

Balance at April 1, 2016 �������Cash dividends paid ���������������
Net income ����������������������������
Purchase of treasury stock ������
Net changes of items otherthan Stockholders’ equity �����
Total changes of items during
the period ����������������������������
Balance at March 31, 2017 ���
Balance at April 1, 2017 �������Cash dividends paid ���������������
Net income ����������������������������
Purchase of treasury stock ������
Net changes of items otherthan Stockholders’ equity �����
Total changes of items during
the period ����������������������������
Balance at March 31, 2018 ���CommonStock:

Additional Paidin Capital

Retained
Earnings¥5,057———¥4,644———¥16,410
(258)
616
—

—

—

—

—
¥5,057¥5,057————¥4,644¥4,644———358¥16,768¥16,768
(304)
921
—

—

—

—

—
¥5,057—¥4,644

617¥17,385

Foreign
Remeasure- Total AccumuCurrency
ments oflated Other
Translation
DefinedComprehenAdjustments Benefit Plans sive Income

Total
Treasury Stock, Stockholders’at CostEquityUnrealized
Gains onSecurities¥(137) ¥25,974
—
(258)
—
616
(325)
(325)

¥1,653
—
—
—

¥384
—
—
—

¥(48)
—
—
—

¥1,989———¥27,963
(258)
616
(325)

—

16

(62)

44

(2)

(2)

(325)
33
¥(462) ¥26,007¥(462) ¥26,007
—
(304)
—
921
(0)
(0)

16
¥1,669¥1,669
—
—
—

(62)
¥322
¥322
—
—
—

44
¥(4)
¥(4)
—
—
—

(2)
¥1,987¥1,987———

31¥27,994¥27,994
(304)
921
(0)

—

178

(171)

68

75

75

(0)
617
¥(462) ¥26,624

178¥1,847

(171)
¥151

68
¥64

75
¥2,062

692¥28,686——

Total Net
AssetsThousands of U.S. dollars
Stockholders’ Equity
CommonStock

Balance at April 1, 2017 ������� $47,588
Cash dividends paid ���������������
—Net income ����������������������������
—Purchase of treasury stock ������
—Net changes of items otherthan Stockholders’ equity �����
—Total changes of items during
the period ����������������������������
—Balance at March 31, 2018 ��� $47,588

Additional
Paid in
CapitalRetained
Earnings$43,700 $157,784—(2,861)
—
8,670
—
—
—

—

—
5,809
$43,700 $163,593

Accumulated Other Comprehensive Income

Treasury
Stock,
at CostUnrealized
Gains onSecurities$(4,351) $244,721—(2,861)
—
8,670
(2)
(2)

$15,713———$ 3,024———$(34) $18,703
—
—
—
—
—
—

—

1,674

(1,605)

641

710

710

(2)
5,807
$(4,353) $250,528

1,674$17,387(1,605)$ 1,419

641
$607

710
$19,4136,517$269,941—

The accompanying notes to consolidated financial statements are an integral part of these statements.

14

Teraoka Seisakusho Co., Ltd.

Foreign
Remeasure- Total AccumuCurrency
ments oflated Other
Translation
DefinedComprehenAdjustments Benefit Plans sive Income

Total
Stockholders’EquityTotal Net
Assets$263,424(2,861)
8,670(2)

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended March 31, 2018 and 2017

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

¥1,291¥ 768$12,148

867
—
(74)
(0)
17
(96)
0
183

879
333
(399)
4
5
(89)
0
18

8,158
—
(696)
(4)
162
(903)
2
1,729

(809)
230
57
174
1,840
96
(0)
(244)
1,692

(468)
376
447
(124)
1,750
89
(0)
164
2,003

(7,615)
2,165
535
1,639
17,320903(2)(2,297)
15,924

Investing Activities:
Payment for purchases of property, plant and equipment .........................
Payment for purchases of intangible assets ...............................................
Payment for purchases of investment in securities .....................................
Proceeds from sales of investment securities .............................................
Decrease (increase) in time deposits ..........................................................
Net cash used in investing activities ..................................................

(440)
(46)
(3)
91
(54)
(452)

(240)
(20)
(303)
542
—
(21)

(4,148)
(429)
(25)
860
(510)
(4,252)Financing Activities:
Dividends paid ..........................................................................................
Decrease in short-term loans payable ........................................................
Payment for acquisition of treasury stock ..................................................
Other, net .................................................................................................
Net cash used in financing activities .................................................

(304)
(4)
(0)
(19)
(327)

(258)
—
(325)
(4)
(587)

(2,861)
(38)
(2)
(183)
(3,084)

Effect of Exchange Rate Changes on Cash and Cash Equivalents ..........
Net Increase (Decrease) in Cash and Cash Equivalents ...........................
Cash and Cash Equivalents at Beginning of Period ................................
Cash and Cash Equivalents at End of Period ...........................................

(93)
820
7,905
¥8,725

(27)
1,368
6,537
¥7,905(872)
7,716
74,387$82,103

Operating Activities
Income before income taxes .............................................................................
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization ..............................................................
Environmental expenses ........................................................................
Gain on sales of investment securities ...................................................
Increase (decrease) in allowance for doubtful accounts ..........................
Increase (decrease) in net defied benefit liability ....................................
Interest and dividends income ...............................................................
Interest expenses ...................................................................................
Foreign exchange losses (gains) .............................................................
Changes in assets and liabilities:(Increase) decrease in notes and accounts receivable ..........................
(Increase) decrease in inventories .......................................................
Increase (decrease) in notes and accounts payable .............................
Other, net .............................................................................................
Subtotal ...............................................................................................
Interest and dividends income received ...........................................
Interest expenses paid ....................................................................
Income taxes (paid) refund .............................................................
Net cash provided by operating activities ........................................

The accompanying notes to consolidated financial statements are an integral part of these statements.

Teraoka Seisakusho Co., Ltd.

15

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 2018 and 20171� Basis of Presenting Financial Statements
The accompanying consolidated financial statements of
TERAOKA SEISAKUSHO CO., LTD. (the “Company”) and its
subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirements from International Financial Reporting Standards, andare compiled from the consolidated financial statements
prepared by the Company, as required by the Financial
Instruments and Exchange Law of Japan. However, certain
account balances, as disclosed in the basic consolidated
financial statements in Japan, have been reclassified to theextent deemed necessary to enable presentation in a form
which is more familiar to readers outside Japan.
The accounts of overseas consolidated subsidiaries are
based on their accounting records maintained in conformity with generally accepted accounting principles andpractices prevailing in the respective countries of domicile.
For the convenience of readers, the accompanying
consolidated financial statements are presented in U.S.
dollars by translating yen amounts at the rate of ¥106.27=
US$1, the prevailing exchange rate on March 31, 2018.

2� Summary of Significant Accounting Policies
a. Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and five subsidiaries,
TERAOKA SEISAKUSHO (Hong Kong) CO., LTD.,TERAOKA SEISAKUSHO (Shanghai) CO., LTD.,TERAOKA SEISAKUSHO (Shenzhen) CO., LTD.,
SHIN-EI SHOJI CO., LTD. and PT. TERAOKA SEISAKUSHOINDONESIA.
Significant inter-company balances, unrealizedinter-company profits and losses among the companies are entirely eliminated. The assets and liabilities of
the consolidated subsidiaries are incorporated into thefinancial statements at fair value and the difference
between net assets at fair value and investment
amounts are amortized by the straight-line method
over a period of five years.
The fiscal years of overseas subsidiaries end December 31. Overseas subsidiaries’ financial statements are
based on temporary settlement dates of March 31,2018 and 2017 and are used for the consolidation of
the Company.
b. Investments in securities
Debt securities that are intended to be held to maturity (“held-to maturity debt securities”) are measured
at amortized cost in the balance sheet. Securities otherthan held-to maturity debt securities (“other securities”) are measured at fair value.
Other Securities that have fair values are stated atfair value, with unrealized gains and losses included in
the net assets, net of applicable income taxes. Realized
gains and losses on sales of securities are based on themoving average cost of the securities. Other securities
that do not have fair values are stated at cost16

Teraoka Seisakusho Co., Ltd.

determined by the moving average method. For otherthan temporary declines in fair value, other securities
are reduced to net realizable value by a charge toincome.
c. Inventories
The Company mainly applies the cost method basedon the periodic average method which determines
the amount of the inventories shown on the balance
sheet by writing them down based on the decrease in
their profitability.
d. Property, plant and equipment and depreciation
Property, plant and equipment are carried at cost.
Depreciation is computed principally by the decliningbalance method at a rate based on their estimateduseful lives, which range as follow:
Buildings ................................................ 3~50 years
Machinery and equipment ..................... 4~16 years
Depreciation of the Company and its domestic consolidated subsidiary is computed by the decliningbalance method (excluding buildings (excluding building
attachments) acquired on or after April 1, 1998 andbuilding attachments and structures acquired on orafter April 1, 2016 straight-line method), overseas consolidated subsidiaries adopt the straight-line method.
e. Impairment of assets
Assets are reviewed for impairment whenever eventsor changes in circumstance indicate the carrying
amount of an asset or asset group may not be recoverable. An impairment loss is recognized if the carrying
amount of an asset or asset group exceeds the sum of
the undiscounted future cash flows expected to result
from the continued use and eventual disposition of
the asset or asset group. The impairment loss would

be measured as the amount by which the carrying
amount of an asset or asset group exceeds its recoverable amount, which is the higher of the discounted
cash flows from the continued use and eventual disposition of the asset or asset group, or the net selling
price at disposition.
f. Leased assets
Under accounting standards generally accepted inJapan, leased assets related to finance leases that do nottransfer ownership of the leased property to the lessee
are depreciated on a straight-line basis, with lease periodused as their useful lives and no residual value.
g. Income taxes
Income taxes are provided based on amounts requiredby the tax return for the period.
The Company has adopted the asset-liability
method of tax effect accounting to recognize deferred
tax assets and liabilities for the expected future tax
consequences of temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purpose, and the amounts used for income
tax purposes.
h. Allowance for doubtful accounts
Allowance for doubtful accounts provides for possible
losses on the uncollectability of receivables at theamount of estimated uncollectability, based on pastexperience of doubtful receivables and individual evaluation of collectability of the receivables.
i. Accrued retirement benefits(1) The method of attributing expected retirement
benefit to periods
The Company applies the benefit formula basis tomeasure the pension obligation. The expected
retirement benefit attributed to periods of service
under the plan’s benefit formula is deemed asarising in each period.
(2) Actuarial gains and losses
Actuarial gains and losses are amortized by the
declining balance method over a certain period (5years) within the average remaining years of serviceof the eligible employees commencing with thefollowing periods.
j. Foreign currency translation
All receivables and payables denominated in foreign
currencies at the balance sheet date are translated into
yen at current exchange rates. The resulting exchange
gains or losses are charged to income.

Balance sheets of consolidated overseas subsidiaries
are translated into yen at the year-end rates except for
stockholders’ equity accounts, which are translated at
the historical rates. Income statements of consolidated
overseas subsidiaries are translated at average rates.
Translation differences are presented as “foreign currency translation adjustments” in the accompanying
consolidated financial statements.
k. Derivatives and hedge accounting
Derivative financial instruments are stated at fair value
unless they are used for hedging purposes.
If derivative financial instruments are used as hedges
and meet certain hedging criteria, the Company and its
consolidated subsidiaries defer recognition of gains orlosses resulting from changes in fair value of derivative
financial instruments until the related losses or gains on
the hedged items are recognized.
However, in cases where forward foreign exchange
contracts are used as hedges and meet certain hedging
criteria, forward foreign exchange contracts and hedged
items are accounted for in the following manner:
If a forward foreign exchange contract is executedto hedge a future transaction denominated in a foreign
currency, the future transaction will be recorded using
the contracted forward rate, and no gains or losses on
the forward foreign exchange contract are recognized.
l. Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows include all highly liquid investments, generally with original maturities of threemonths or less, that are readily convertible to known
amounts of cash and are so near maturity that theypresent insignificant risk of changes in value.
(Changes in Display Method)(Consolidated Statements of Income)“Interest expenses” which was listed independently in theprevious consolidated fiscal year is included in “Other, net”
from the current consolidated fiscal year because it
became scarce in value. In order to reflect changes in thispresentation method, the consolidated financial statements for the previous consolidated fiscal year have been
reclassified. As a result, “Interest expenses” of 0 million
yen and “Other, net” of 45 million yen are reclassified as“Other, net” of 45 million yen in the consolidated statements of income in the previous consolidated fiscal year.

Teraoka Seisakusho Co., Ltd.

17

3� Contingent Liabilities
Contingent liabilities in respect of trade notes and export
bills discounted with banks with recourse in the ordinary

course of business, amounted to ¥3 million (US$25
thousand) and ¥4 million at March 31, 2018 and 2017.

4� Financial Instruments
Overview(1) Policy for financial instruments
The Company raises the funds by bank borrowings, andmanages funds only through short-term time deposit
and others. The Company uses derivatives for the purposes of managing foreign currency exchange risk related to trading receivables and payables, and does notenter into derivatives for speculative or trading purposes.
(2) Types of financial instruments and related risk
Trade receivables – notes receivable and accounts
receivable, and electronically recorded monetaryclaims – are exposed to credit risk in relation to customers. In addition, the Company is exposed to foreign currency exchange risk arising from receivables
denominated in foreign currencies resulting from tradewith overseas customers.
Equity securities – the Company holds equity
securities, which are mainly issued by company who
have business relationships with the Company, andthese securities are exposed to the risk of fluctuation inmarket prices. Trade payables – notes payable andaccounts payable, and electronically recorded obligations – mostly have payment due dates within one year.
A portion of trade payables, which is denominated inforeign currencies, is exposed to foreign currency
exchange risk. Long-term debt is taken out principallyfor the purpose of capital expenditure. Long-term debt
with interest rate fluctuation risks is carried out on fixed
rate loans. Debt is exposed to liquidity risk relating to
the funding as described below.

18

Teraoka Seisakusho Co., Ltd.

(3) Risk management for financial instruments(a) Monitoring of credit risk (the risk that customers may
default)
In accordance with the internal policies for managing
credit risk of the Company, the Company monitors
credit worthiness of their main customers periodically,
and monitors due dates and outstanding balances bycustomer.
To minimize the credit risk when entering into
derivative transactions, counterparties are limited tofinancial institutions with high ratings.
(b) Monitoring of market risks (the risks arising fromfluctuations in foreign exchange rates, interest rates
and others)
For equity securities included in investments in securities, the fair values of these securities are periodicallyreviewed and reported to the Board of Directors.
In conducting and managing derivative transactions,the accounting department confirm the effectiveness ofhedging and obtain approval from the responsible
person, depending on the notional contract value,
based on the internal policies and formal regulations onmarket risk for financial instruments.
(c) Monitoring of liquidity risk for financing (the risk that
the Company may not be able to meet its obligations
on the scheduled due dates)
The Company manages the liquidity risk mainly throughthe monthly cash-flow plans, prepared by the Company.
(4) Supplementary explanation of the estimated fair valueof financial instruments
The notional amounts of derivatives listed below are
not necessarily indicative of the actual market risk
involved in derivative transactions.

Estimated Fair Value of Financial Instruments
The carrying value of the financial instruments on the
consolidated balance sheet as of March 31, 2018 andunrealized gain (loss) are shown in the following table.

The table does not include financial instruments for which
it is extremely difficult to determine the fair value. (Pleaserefer to (2) below).
Millions of yen

Financial Instruments

Carrying

Estimatefair value(1) Cash and deposits ...................................................................................

¥ 9,077¥ 9,077—(2) Notes and accounts receivable .................................................................

5,909

5,909

—

Difference(3)Electronically recorded monetary claims ....................................................

1,013

1,013

—

(4) Marketable securities and investments in securities .................................

4,115

4,115

—

(5) Notes and accounts payable ....................................................................

(1,294)(1,294)—(6) Electronically recorded obligations ...........................................................

(2,455)(2,455)—(1) Methods to determine the estimated fair value offinancial instruments and other matters related tosecurities and derivative transactions
Cash and deposits, Notes and accounts receivable, andElectronically recorded monetary claims
Since these items are settled in a short period, theircarrying value approximates fair value.
Investment in securities
The fair value of equity securities is based on quoted
market prices.
Notes and accounts payable, Electronically recorded
obligations, and short-term debt
Since these items are settled in a short period of time,
their carrying value approximates fair value.
(2) Financial instruments for which it is extremely difficult
to determine the fair value were as follows:
As of March 31, 2018
Unlisted equity securities

Millions of yen¥19

The above financial instruments are not included in thepreceding table, because no quoted market prices are available and it is extremely difficult to determine the fair value.
(3) Redemption schedule for receivables and marketablesecurities with maturities at March 31, 2018
Millions of yen

Due in One
Year or Less

Cash and deposits ......................................
Notes and accounts receivable ....................
Electronically recorded monetaryclaims - operating .....................................
Marketable securities andinvestments in securities ...........................
Total¥ 9,077
5,909
1,013
—
¥15,999(4) The redemption schedule for short-term debt and longterm debt at March 31, 2018 and 2017 was as follows:
Millions of yen

Short-term debt .....................
Total ...................................

2018
¥—
¥—

2017
¥4
¥4

Average interest
rates (%)

2018—

Teraoka Seisakusho Co., Ltd.

19

5� Securities
Historical costs, fair value and gross unrealized gains and losses for marketable securities as of March 31, 2018 and 2017 are
as follows:
Millions of yen

2018
Historical costs

Fair value

Net differences

Gross gains

Gross losses¥1,216¥3,809¥2,593¥2,593¥—

Other Securities:
Equity securities ................................................
Other ................................................................

299

306

6

6

—

Total .....................................................................

¥1,515¥4,115¥2,599¥2,599¥—Millions of yen

2017
Historical costs

Fair value

Net differences

Gross gains

Gross losses¥1,230¥3,574¥2,344¥2,344¥—

Other Securities:
Equity securities ................................................
Other ................................................................

300

300

0

0

—

Total .....................................................................

¥1,530¥3,874¥2,344¥2,344¥—

Thousands of U.S. dollars

2018
Historical costs

Fair value

Net differences

Gross gains

Gross losses

Other Securities:
Equity securities ................................................

$11,439$35,843$24,404$24,404$—

Other ................................................................

2,816

2,876

60

60

—

Total .....................................................................

$14,255$38,719$24,464$24,464$—

Securities that do not have fair values are as follows:
Thousands of
U.S. dollars

Millions of yen

2018

20

2018

2017

Equity securities ..................................................................................................

¥19

¥19

$178

Other ..................................................................................................................

—

—

—

Total ...................................................................................................................

¥19

¥19

$178

Teraoka Seisakusho Co., Ltd.

6� Retirement and pension plans
The Company has a defined benefit pension plan. Our
domestic consolidated subsidiary and one of overseas
consolidated subsidiaries have retirement lump-sum plans.
In addition, when an employee retires, an employee may
be paid additional retirement benefits that are not part ofretirement benefit obligations. In lump-sum benefit plansoffered by domestic consolidated subsidiary etc. the retirement benefits and liabilities relating to the retirement
benefits are calculated using the simplified method.

The detailed notes relating to defined benefit pension plans for the fiscal year ended March 31, 2018 and 2017 were as follows:(1) Changes in defined benefit obligations
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Beginning balance of benefit obligations ............................................................

¥4,571¥4,511$43,017

Service cost .....................................................................................................

254

275

2,394

Interest cost ....................................................................................................

28

23

262

Actuarial gains and losses ...............................................................................

(12)

(79)

(112)

Benefits paid ...................................................................................................

(158)

(159)

(1,483)Ending balance of benefit obligations .................................................................

¥4,684¥4,571$44,078(2) Changes in Pension Assets
Thousands of
U.S. dollars

Millions of yen

2018

2018

2017

Beginning balance of pension assets ..................................................................

¥4,659¥4,537$43,841

Expected return on pension assets ..................................................................

93

91

877

Actuarial gains and losses ...............................................................................

84

(40)

793

Contributions by the employer ........................................................................

183

230

1,719

Benefits paid ...................................................................................................

(158)

(159)

(1,483)Ending balance of pension assets .......................................................................

¥4,861¥4,659$45,747(3) Reconciliation of retirement benefit liabilities using the simplified method
Thousands of
U.S. dollars

Millions of yen

2018

2018

2017

Beginning balance of retirement benefit liabilities ...............................................

¥31

¥29

$293

Benefits expenses ............................................................................................

13

7

119

Benefits paid ...................................................................................................

(4)

(5)

(36)

Ending balance of retirement benefit liabilities ...................................................

¥40

¥31

$376

Teraoka Seisakusho Co., Ltd.

21

(4) Reconciliation of benefit obligations and pension assets with net defined benefit liability and asset on theConsolidated Balance Sheets
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Funded defined benefit obligations ....................................................................

¥ 4,684¥ 4,571$ 44,078

Pension assets ....................................................................................................

(4,861)(4,659)(45,747)

Subtotal ..........................................................................................................

(177)

(88)

(1,669)Unfunded defined benefit obligations ................................................................

40

31

376

Net amount of liabilities and assets recognized in consolidated balance sheet ....

(137)

(56)

(1,293)Liabilities (net defined benefit liability) ................................................................

40

31

376

Assets (net defined benefit assets) ......................................................................

(177)

Net amount of liabilities and assets recognized in consolidated balance sheet ....

¥ (137)¥(88)(1,669)(56)$ (1,293)

Note: This includes plans using the simplified method.

(5) Retirement benefit expenses
Thousands of
U.S. dollars

Millions of yen

2018

2018

2017

¥254

Service costs .......................................................................................................

¥275$2,394

Interest costs ......................................................................................................

28

23

262

Expected return on pension assets ......................................................................

(93)

(91)

(876)

Recognition of actuarial gains and losses ............................................................

2

25

18

Benefits expenses calculated on the simplified method ......................................

13

7

119

Total ...................................................................................................................

¥204

¥239

$1,917(6) Remeasurements of defined benefit plans (Other comprehensive income)Thousands of
U.S. dollars

Millions of yen

2018
Actual differences ...............................................................................................

2018

2017

¥98

¥64

$924

(7) Remeasurements of defined benefit plans (Accumulated other comprehensive income)Thousands of
U.S. dollars

Millions of yen

2018
Unrecognized actuarial gains and losses .............................................................

¥93

2018

2017
¥(5)

$874

(8) Pension Assets① Breakdown of pension assets

22

2018

2017

Debt securities ................................................................................................................................

68%

69%

Equity securities ..............................................................................................................................

24%

23%

Cash and deposits ..........................................................................................................................

3%

3%

Other ..............................................................................................................................................

5%

5%

Total ...............................................................................................................................................

100%

100%

Teraoka Seisakusho Co., Ltd.

② Rate of expected return on pension assets

Expected return rate on plan assets is determined by considering the current and anticipated future portfolio of
pension assets and current and anticipated future

long-term performance of individual asset classes that
comrise the funds’ asset mix.

(9) Basic assumptions for calculating benefit obligations
2018

2017

Discount rate ..................................................................................................................................

0�5%

0.6%

Expected return rate on plan assets ................................................................................................

2�0%

2.0%

Salary Increase Rate ........................................................................................................................

2�8%

2.8%

7� Income Taxes
Deferred income tax assets and liabilities as of March 31, 2018 and 2017 were composed of the following:Thousands of
U.S. dollars

Millions of yen

2018

2018

2017

Deferred tax assets:
Accrued bonus to employees ..........................................................................

¥ 125

¥ 122

$ 1,173

Depreciation ...................................................................................................

3

6

26

Loss on valuation of investment securities .......................................................

80

80

757

Net defined benefit liability .............................................................................

12

9

115

Tax loss carryforward .......................................................................................

283

441

2,661

Impairment loss ..............................................................................................

236

252

2,222

Loss on valuation of inventories ......................................................................

103

98

965

Asset retirement obligations ............................................................................

92

91

864

Provision for environmental measures .............................................................

97

97

909

Other ..............................................................................................................

(34)

(43)

(316)

Valuation allowance ........................................................................................

(656)

(822)

(6,168)

Total deferred tax assets ..................................................................................

¥ 341

¥ 331

$ 3,208

Reserve for advanced depreciation of noncurrent assets .................................

(9)

(11)

(87)

Unrealized gains on other securities ................................................................

(752)

(674)

(7,077)

Net defined benefit asset ................................................................................

(54)

(27)

(511)

Deferred tax liabilities:

Other deferred tax liabilities ............................................................................

79

167

744

Total deferred tax liabilities ..............................................................................

¥(737)¥(545)$(6,931)

Net deferred tax assets (liabilities) ....................................................................

¥(396)¥(214)$(3,723)

Teraoka Seisakusho Co., Ltd.

23

A reconciliation on the difference between the statutory tax rate and effective rate on taxable income for the fiscal years
ended March 31, 2018 and 2017 is as follows:
Statutory tax rate ............................................................................................................................

2018

2017

30�9%

30.9%

Entertainment and other non-deductible expenses .........................................................................

2�4

0.9

Dividend and other non-taxable income .........................................................................................

(0�4)

(0.7)

Per capita levy of inhabitant taxes ...................................................................................................

1�3

2.2

Increase in valuation allowance ......................................................................................................

(0�9)

(6.8)

Tax deduction for research expenses ...............................................................................................

(7�9)

(8.2)

Rate difference from foreign subsidiaries ........................................................................................

(1�7)

(2.7)

Consolidated adjustment ................................................................................................................

4�8

2.4

Other, net .......................................................................................................................................

0�3

1.7

Effective tax rate .............................................................................................................................

28�6%

19.7%

8� Subsequent EventAppropriation of retained earnings
Subsequent to March 31, 2018, the Company’s Board of
Directors, with the approval of stockholders on June 22,2018 declared a cash dividend of ¥152 million (US$1,430
thousand) equal to ¥6.00 (US$0.06) per share, applicable24

Teraoka Seisakusho Co., Ltd.

to earnings of the year ended March 31, 2018 and payable to stockholders on the stockholders’ register on
March 31, 2018.

REPORT OF INDEPENDENT AUDITORS

Independent Auditor’s Report
To the Board of Directors of Teraoka Seisakusho Co., Ltd.
We have audited the accompanying consolidated balance sheets of Teraoka Seisakusho Co., Ltd. and consolidated subsidiaries as of March 31, 2018 and the related consolidated statements of income, comprehensive
income, stockholders’ equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information, all expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with accounting principles generally accepted in Japan, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audits in conformity with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the consolidated financial statements, whether due tofraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
principles used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Teraoka Seisakusho Co., Ltd. and consolidated subsidiaries as of March
31, 2018 and the consolidated results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in Japan.
Convenience Translation
Our audit also comprehended the translation of Japanese yen amount into U.S. dollar amounts and, in our
opinion, such translation has been made in conformity with the basis stated in Note1. Such U.S. dollar
amounts are presented solely for the convenience of readers outside Japan.
Tokyo, Japan
June 22, 2018

INOUE AUDIT CORPORATION

Teraoka Seisakusho Co., Ltd.

25

COMPANY DATA

Company Outline(as of March 31, 2018)

Company NameTERAOKA SEISAKUSHO CO., LTD.

Head Office

4-22, Hiromachi 1-chome, Shinagawa-ku, Tokyo 140-8711, Japan
Tel: 81-3-3491-1141
Fax: 81-3-3491-5316

FoundedFebruary 11, 1921

Incorporated

May 5, 1943

Paid-in Capital¥5,057 million

Employees

489 (679 consolidated)

Board of Directors and Auditors(as of June 22, 2018)

ChairmanKeishiro Teraoka

President

Kenichi Tsuji

Managing Director

Masakazu Naitou

Directors

Taiji Namekawa
Nobuhisa Ishizaki
Tatsuya Kubo

Noriya Hashimoto
Noriyoshi Shiraishi
Audit & Supervisory Board Members

Yutaka Nomiyama
Jun Watanabe
Masaki Miyake
Harushige Sakai

Operating Officers

Mitsuhiro Takano
Satoshi Hironaka

26

Teraoka Seisakusho Co., Ltd.

Consolidated Subsidiaries
Shin-ei Shoji Co., Ltd.

Tokyo, Japan

Teraoka Seisakusho (Hong Kong) Co., Ltd.

Hong Kong, China

Teraoka Seisakusho (Shanghai) Co., Ltd.

Shanghai, China

Teraoka Seisakusho (Shenzhen) Co., Ltd.

Shenzhen, China

PT. Teraoka Seisakusho Indonesia

Karawang, Indonesia

R&D Center, Factories and Offices
R&D Center

Shinagawa-ku, Tokyo

Factories
Ibaraki Factory

Kitaibaraki, Ibaraki Prefecture

Sano Factory

Sano, Tochigi Prefecture

Kannami Factory

Kannami-cho, Shizuoka Prefecture

Branch Offices

Tokyo, Osaka, Nagoya and Seoul

Representative Office

Taipei

Teraoka Seisakusho Co., Ltd.

27

INVESTOR INFORMATION

Investor Information

Head Office(as of March 31, 2018)

Teraoka Seisakusho Co., Ltd.
4-22, Hiromachi 1-chome, Shinagawa-ku, Tokyo 140-8711, Japan
Telephone: 81-3-3491-1141
Facsimile: 81-3-3491-5316

Financial Year

April 1 to March 31

Common Stocks

Authorized Shares 80,000,000
Issued Shares 26,687,955

Stockholders

2,869

Stock Listing

Tokyo Stock Exchange, Second Section (Code: 4987)

Transfer Agency

Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo
100-8212, Japan

Major Stockholders
Number ofshares(thousandshares)Ratio of shareholding (%)

ITOCHU Corporation

6,672.0

26.34

Customers’ Stockholding Group

2,798.8

11.05

1,310.0

5.17

Keishiro Teraoka

890.9

3.52

MUFG Bank, Ltd.

818.8

3.23

Resona Bank, Ltd.

678.8

2.68

Japan Trustee Services Bank, Ltd.

649.6

2.56

Kuniko Teraoka

526.0

2.08

NOMURA PB NOMINEES LIMITED A/C CPB30072482276

411.2

1.62

Employees’ Stockholding Group

391.0

1.54

Stockholders

BNP PARIBAS SECURITIES SERVICES LUXEMBOURG/JASDEC/FIM/
LUXEMBOURG FUNDS/UCITS ASSETS

28

Teraoka Seisakusho Co., Ltd.

http://www.teraokatape.co.jp

Printed in Japan

12

Teraoka Seisakusho Co., Ltd.